Health care is all Keynesian now

Article by: THOMAS GEOGHEGAN

Bloomberg News

August 26, 2012 - 9:12 PM

If Barack Obama wins re-election, let him thank his lucky stars that entitlements are out of control. If Medicare spending was capped and couldn't shoot up automatically, unemployment would probably be in double digits.

Out-of-control health care spending is the only stimulus the Republicans can't stop. What else is there?

Go out late at night in some of the darkest American cities. Whether it's Cleveland, Baltimore or St. Louis, it seems the only thing left to light up the gloom is a big hospital, shining like a 12-gated city, inlaid with MRIs like precious jewels. And for that we can give thanks to Medicare and Medicaid.

Imagine Cleveland without the Cleveland Clinic, or Baltimore without Johns Hopkins. Even in Chicago, with a more diversified base, the city would seem flat without the expansion at Northwestern Memorial Hospital and Rush University Medical Center -- with all that hammering and sawing as they get ready for Obamacare.

If Medicare, in particular, wasn't out of control, many inner-city high-school grads would find it even harder to get jobs. According to research cited in the Harvard "Pathways to Prosperity" report in 2011, health care by itself added a half-million jobs even in the recession -- not just ones for high-school grads as security guards and cooks, but jobs for those with "some college," such as respiratory technicians.

It's not the WPA, but all this health care spending creates the kind of "middle-skilled" jobs we have to push now in lieu of assembly lines. Many high-school grads -- or those we may euphemistically say have "credentials short of an associate's degree" -- earn more than those with college diplomas. Thanks to entitlements being out of control, there is still at least one way into the middle class.

All this also has a Keynesian-type effect to make up for the way state and local governments keep cutting back spending. This was the first recession where we responded by cutting public-sector jobs.

Government employment has fallen to its lowest level since 1968, Bloomberg's BGOV Barometer shows. The cutbacks forced by balanced-budget clauses in many state constitutions only hold back a real recovery.

On the other hand, Medicare goes on its merry uncapped way, and has a synergy effect with all the other health care spending. In some sense, the jobs that come out of this automatic federal stimulus are public-sector jobs, in that plenty of people in health care owe their employment to Medicare spending that keeps going up.

To a social-democrat type like me, the problem, at least in this current economy, is not that health care entitlements are out of control, but that all this spending seems to entitle us to less and less. My older friends are groaning: "Wait -- I'm going to turn 65, and I'm still going to have to pay for half of my health care?"

It's inefficient, and it's wasteful, partly because there's not enough Medicare and Medicaid -- let alone a single-payer system across the board -- to let the government dictate prices. The smaller its share in paying for health care in the United States, the less able the government is to hold down prices -- which is how most social democracies in northern Europe and Canada and elsewhere keep their costs under control.

But for the moment, look at the bright side: At least the bucks keep going out the door. One can think of public spending that could have a much bigger multiplier effect -- for example, a dollar to stop a teacher or a cop from being fired. But that's discretionary state and local spending, while Medicare entitlements can't be stopped.

If one thinks of our whole health care industry as a public sector in disguise, it starts to seem that the free-market U.S. is almost as statist as France. After all, health care is about 18 percent of the United States' gross domestic product, soon to be 20 percent or more.

Health care is our King Coal. If we were Russia, it would be our Gazprom. If the U.S. is in a "controlled" depression, Medicare spending is doing the controlling, keeping the bottom from falling out of the economy. McDonald's, Wendy's, Microsoft, General Electric, even Caterpillar in a way depend on the consumer spending from millions of Americans who only have jobs because entitlements are out of control.

Medicare may even make the United States more globally competitive. Although chief executive officers are shedding nonwage benefits, such as retiree medical plans, some companies still cover a share of the costs. And it's not just because of union pressure. To attract the most-skilled workers, some of the best U.S. companies offer some supplemental retiree health benefit.

Cut Medicare, and nonwage labor costs go up. Limit it to vouchers, and you will see more companies offering at least something. Yes, it's just one more nonwage cost, and retiree health care would be one of the most unpredictable of all. How would we induce investment to create high-end jobs if we create even more uncertainty about these costs?

The Republicans -- with Rep. Paul Ryan's budget plan -- would do just that. Don't think Ryan's plan would simply be shifting health care costs to the poor, or even the middle class, or even to his mother. Inevitably we would be shifting some of these costs to our global corporate champions, too. Isn't the U.S. trade deficit big enough?

At the moment, though, the Ryan plan isn't law, and at least we have some stimulus the Tea Party can't stop. Americans should be grateful that they live in a country where entitlements are out of control.